Archives for October 2014

How to Avoid Tax Levies and Garnishments

The Common Tax Mistakes You Want to Avoid

Tax burden illistrationUnder the federal bankruptcy laws, most taxes are not dischargeable. That means that you cannot rid yourself of income taxes, sales taxes or payroll taxes that you owe by filing a Chapter 7 petition, with very limited exceptions. In a Chapter 13 bankruptcy case, most taxes will have to be paid in full over the course of three to five years. While the Chapter 13 is pending, however, and you will enjoy the benefits of the automatic stay, which prohibits the taxing authority from taking any other action to collect past-due taxes.
The best way, however, to deal with tax arrearages is to avoid incurring them in the first place. The most common sources of tax debt arise from:

  • Failure to file a return and pay a tax — If you don’t file a tax return, the IRS or the state will do it for you, using past income records to “estimate” a tax for you that is usually more than you really owe. Don’t fail to file simply because you can’t afford to pay the tax. Always file and pay what you can afford to pay.
  • Failure to set aside funds for taxes — too many people who are self-employed fail to set aside money to pay estimated taxes. For most small businesses, this money should be taken out of the main business operating account and put into as separate “tax account” that becomes a separate escrow fund. A benefit of this strategy is that tax escrow accounts cannot be attached by creditors. Another benefit is that this money cannot be depleted if for example, a customer’s check bounces.
  • Failure to collect and pay sales tax — This is typically a state or municipal matter. These taxes are non-dischargable. In New Jersey, anyone who had decision making authority over whether or not to pay these taxes or other bills can be found personally liable.
  • Failure to pay payroll taxes when due —when you deduct money from an employee’s paycheck, you are taking their money to pay their taxes for them. Government taxing authorities take a very hard line on the nonpayment of FICA and other payroll taxes. Again, any person with authority to pay the debts of a business may be liable for nonpayment, and the government can assess a 100-percent penalty for nonpayment.
  • Not keeping good and accurate business records. Self explanatory.
  • Trying to avoid paying employee taxes by calling workers “independent contractors” instead. The distinction between employees and independent contractors is complex. But if the worker has regular hours and is supervised on the job, they are probably employees. If a stated auditor investigates and determines that they are really employees, the business and business owners can become liable for all the money that they failed to collect from the workers as employees. Bad news!

Here again, prevention is the best cure. Get qualified tax and legal advice. If you are in trouble, seek qualified advice sooner rather than later.

Contact Our Office

At Neuner & Ventura, LLP, we offer a free initial consultation to every client. We do, however, reserve the right to charge a fee to review any work done by another attorney. Let us help you minimize the stress, anxiety and confusion that come with a personal bankruptcy filing.

For an appointment, call Neuner & Ventura at (856) 596-2828 or send us an e-mail. Evening and weekend appointments are available upon request.

Representing Clients Across Central and Southern New Jersey

IRS CIRCULAR 230 DISCLOSURE: Pursuant to Treasury Regulations, any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used or relied upon by you or any other person, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any tax advice addressed herein.

Using a Chapter 13 Bankruptcy to Help Sell Your Home

Can a Bankruptcy Filing Help You Sell Your Home?

Home for saleSometimes, homeowners are prevented from selling their home because of unpaid judgments. Normally, these judgments have to paid or satisfied for a home-seller to deliver clear title to the buyer. But the judgments may make that impossible. That is where a bankruptcy can come in.

Any bankruptcy will normally result in a discharge of debts, including most that have been reduced to judgment. In a bankruptcy, the debtor/homeowner has the power to “avoid” judgments under certain limitations. In Chapter 7 bankruptcies, this is done by filing a motion for “lien avoidance”. In Chapter 13, in New Jersey, judgments can be avoided under an approved Chapter 13 Plan. Once all the payments are made, the court can enter an order avoiding and removing the judgments, even if they have not been fully paid.

Judgments are only avoided to the extent that they “impair” the debtor’s right to exempt the value of the home. If the value of the home, minus the total of all mortgages and judgments, minus the amount that can be claimed as exempt, is a positive value, the judgment might not be subject to being totally avoided.

In New Jersey, those who have received a bankruptcy discharge more than 12 months ago can file a state court motion to “cancel” judgments. This is an alternative that may work well for many people.

Using a Chapter 13 Petition to Avoid having to sell your home

A Chapter 13 Bankruptcy can be used to bring a mortgage current and to stop judgment holders or other creditors from demanding or seizing your income. In this way, a sale of the home may not be needed. See our other blog articles where this is discussed.

Contact Neuner & Ventura, LLP

At Neuner & Ventura, LLP, we provide a free initial consultation to every client. We do, however, reserve the right to charge a fee to review any work done by another attorney. To set up an appointment, call our office at (856) 596-2828 or send us an e-mail. Evening and weekend appointments are available upon request.

Representing Clients Across Central and Southern New Jersey

NJ Supreme Court holds arbitration clause in debt-adjustment contract is unenforceable

More and more contracts include clauses requiring that any dispute be resolved through arbitration rather than by going to court. Courts generally favor arbitration, a process whereby a private neutral third party hears evidence and decides the dispute. Arbitration is believed to be faster and cheaper than lengthy court actions. Often this is the case (although complex business disputes may be less fast or cheap as commonly expected.) Arbitration is, however, different than going to court, with limited or no right to appeal, and far fewer protections against arbitrary or unsatisfactory decisions.

More and more “boilerplate standard contracts” that consumers are entering into contain these clauses. This is an effort by  companies providing credit, goods or services to consumers to control or restrict the rights of customers to drag them into court.

However, the New Jersey Supreme Court recently ruled that an arbitration clause in  one such contract was not sufficiently clear about what the customer was giving up to be enforceable. Patricia Atalese signed a contract with US Legal Services Group [USLSG] for it to work to settle or resolve her debts. Dissatisfied with what USLSG did, she sued in New Jersey alleging violations of state and federal consumer protection statutes. Pointing to the arbitration clause on page 9 of its 23 page contract, USLSG moved to compel arbitration, and the trial court agreed. This was upheld on the first level of appeals but then the case got to the Supreme Court, which disagreed and reversed.

The key, the Court said, was that the arbitration clause did not clearly put Ms. Atalese on notice that she was waiving her right to sue in court. Waivers of important rights, it said, must always be clear and specific. Here, while the clause said that either party may submit any dispute to “binding arbitration” it did not explain what arbitration is, or how it is different from a proceeding in a court of law. Most importantly, it did not state, in language that was clear, unambiguous, and understandable to the average consumer, that she was giving up the “time honored” right to bring her claims to court or have a jury decide them.

Every day, consumers agree to terms that they may or may not have read. They may sign a lengthy “standard” contract, or they may simply “click” online acceptance of terms. Most times, these are “contracts of adhesion” in that the consumer has no meaningful power to negotiate. It is refreshing, however, that at least one court is requiring some clarity in those documents where they involve waiver of important rights.

For those drafting contracts, the decision, Atalese v U.S. Legal Services Group (decided Sept. 23, 2014) is a reminder to turn square corners in securing waivers of established rights.

 

Options When Facing a Home Foreclosure

Your Options When Facing Home Foreclosure

Foreclosure next exitIf you have fallen behind on your mortgage payments, you may be thinking about seeking protection in bankruptcy. Once you file for bankruptcy protection, you will be entitled to the automatic stay, which prohibits most creditors (including mortgage lenders) from calling, writing or taking legal action to collect a debt from you. The reality, though, is that bankruptcy is rarely a long-term solution to your inability to pay your mortgage. Here’s why:

  • While a bankruptcy discharge eliminates your personal liability on the mortgage obligation, the lien on your home or property generally “passes through” and remains after a discharge. In other words, a bankruptcy does not allow you to continue not paying a mortgage and keep the property indefinitely.
  • If you have enough equity in your home, a Chapter 7 bankruptcy can result in the trustee selling it, paying off the mortgages, giving you some money, and keeping the rest to pay creditors. Under the bankruptcy laws, you are entitled to an exemption for your home, but it’s an exemption on the equity you have in your home. Your equity is the difference between the amount you owe and the fair market value of your home. If you owe nothing on your home, it’s all equity, but you will only be entitled to the exemption amount of equity. Under the federal bankruptcy exemptions, that amount is currently $22,975.00 per individual or $44950.00 for a husband and wife filing jointly. (There are different rules where only one of multiple owners files bankruptcy. If the numbers support it, the bankruptcy trustee will choose to sell your home and give you up to the amount of the exemption in your equity, before using any remaining proceeds to pay off creditors. (This is very simplified. You need to see a qualified attorney to review your situation)
  • If you file bankruptcy under Chapter 13 you can use a bankruptcy plan to bring the loan current, while resuming normal monthly payments. (In New Jersey, this right ends when a Sheriff Sale takes place.) Nonetheless, Chapter 13 can be an effective tool to help prevent the loss of your home, especially if your financial challenges are temporary or tied to a specific event, such as the loss of a job, a divorce or an injury or illness. In addition, you can rid yourself of other obligations that make it difficult to make your mortgage payments. Ideally, when you come out of Chapter 13, you won’t have the overwhelming obligations you previously faced.

You Have More Time Than You Think

A common misperception is that, once your lender has sent notice of foreclosure or initiated foreclosure proceedings, you have little time before you must vacate the premises. In New Jersey, the current reality is that it typically takes eight months or more for a property to make it to a foreclosure sale. In other states the timing and procedures will be different.

For most people the best thing to do as the foreclosure process moves forward is to stay in your home. That way, the home is occupied and homeowners insurance at normal rates remains available. If you vacate the premises, your homeowner’s insurance may not cover any losses, even if you were current on the premiums. Staying in the home allows you to accumulate funds to pay for moving expenses, a security deposit on a rental, or other important purposes.

Until a Sheriff Sale or other sale of the property, some things are critical. Make sure there is insurance providing coverage to YOU in place. When lenders buy insurance after a cancellation (called “forced place” insurance) you do not have coverage. If necessary, buy proper insurance for yourself. Secondly, make sure you stay current on utilities including water bills. Finally, if there is a condo or homeowner association, you will generally want to stay current on those bills as well.

A Short Sale or Deed in Lieu of Foreclosure may make matters worse.

Ironically, those well-meaning borrowers who negotiate a short sale or deed in lieu of foreclosure may make matters worse for themselves. In these situations, the property is sold or deeded back to the lender with a balance still due on the loan. There are important tax consequences and other considerations here.* In other words, these options may be right for some people, but not for everyone.

Whatever your situation, get qualified advice.

The discussion above is very general. Each situation is different. Your choices or options will be dictated by your needs and situation. Understanding all your choices and the risks and benefits of each is essential.

Contact Neuner & Ventura, LLP

We understand the stress, anxiety and confusion that can be associated with a potential bankruptcy filing. We offer a free initial consultation to every client. We do, however, reserve the right to charge a fee to review any work done by another attorney. For an appointment, call Neuner & Ventura at (856) 596-2828 or send us an e-mail. Evening and weekend appointments are available upon request.

Representing Clients Across South Jersey

* IRS CIRCULAR 230 DISCLOSURE: Pursuant to Treasury Regulations, any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used or relied upon by you or any other person, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any tax advice addressed herein.

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